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What is fractional ownership and how does it work?

Real estate and homebuying is already jam-packed full of terminology, however now there is a new term on the block that is worth understanding. Here we outline everything you need to know about fractional ownership.

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The history of
fractional ownership

Fractional ownership has gained popularity in recent years, largely due to the popularity of the sharing economy. With the sharing economy disrupting various industries like transportation (Uber and Lyft) and accommodation (Airbnb anyone?), it was only a matter of time before this innovative concept made its way into real estate.

The rise of the sharing economy has changed the way people view ownership, particularly Millennials and Gen Zers who grew up with the concept. The sharing economy has introduced the idea of sharing resources and maximizing utilization, rather than individual ownership being the goal. Fractional ownership in real estate aligns with this trend by allowing multiple individuals to collectively own and benefit financially from property, while reducing the financial burden for each owner. This model not only provides access to desirable properties that would otherwise be financially out of reach but also encourages a sense of community and shared responsibility.

What is fractional ownership in a nutshell?

Fractional ownership is a modern approach to ownership that allows individuals to purchase a fraction or small share of an asset, such as real estate, artwork or high-value collectibles, typically through a fractional ownership platform. Instead of buying the entire asset outright, buyers invest a smaller portion, and gain partial or shared ownership of that asset. In the US, the legal structure used to fractionalize assets is usually a limited liability company (LLC) which is set up to own the asset. Individual investors buy shares in the LLC which give them the economic benefit of owning a fraction of the underlying asset.

Fractionalizing assets is not new, but the type of asset being fractionalized has evolved. It has been possible to buy shares in a company for quite some time, or a share of a race horse, for example. More recently, innovation in the market has meant that it is now possible to buy a small portion of a property through fractional home ownership.

Is fractional ownership a good investment?

As discussed above, fractional home ownership provides a fantastic opportunity for both first-time homebuyers and investors. However, there are trade offs to consider.

Investors may have limited decision-making power over the property and need to trust that the property manager will do their job to maximize investor returns. Of course, if only a fraction of a property is owned, then only a fraction of any overall returns can be gained, with any returns being tied to the specific equity stake or fraction held by the individual.

For first-time buyers, the biggest benefit of fractional ownership are the low down payment and the fact that the first-time buyer is not responsible for repairs – an often unforeseen major expense. The downside of fractional ownership for the first-time buyer is that any house price appreciation is shared with the investors, generally in a pro-rata fashion. This means that a first-time buyer with 10% equity ownership will only benefit on appreciation on those 10%. Of course, in a scenario in which house prices fall, the risk of being underwater is far lessened.

It is important for first-time homebuyers to understand how fractional ownership works before determining if it is the right option for them. For potential investors, it’s important to carefully evaluate the trade-offs and consider individual circumstances, risk tolerance and investment goals before opting for fractional ownership.

Testimonials

Jasmine K, 29

Marketing Consultant

Young Professional

WealthAccelerator changed the game for me. As someone just starting to invest, I was overwhelmed by options and unsure where to begin. Their step-by-step system gave me clarity and confidence—and within six months, I saw more growth than years of trying to figure it out on my own. Highly recommend it to anyone serious about building wealth early!

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Tech Founder

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I’ve run multiple businesses, but I never had time to focus on my personal finances. Wealth Accelerator gave me a simple yet powerful framework to grow my net worth without constant attention. It’s smart, strategic, and efficient—exactly what I needed.

10.04.2018

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School Administrator

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At 57, I wasn’t sure if I was doing enough to retire comfortably. WealthAccelerator not only helped me optimize my existing portfolio, but also revealed missed opportunities I didn’t even know existed. I feel more secure—and even a little excited—about my financial future now.